The following article was first published by Frankfurter Allgemeine Sonntagszeitung on Sunday 23 May 2004.

Oil is scarcer than ever. The price for petrol is at record levels. The economy, consumers and of course politicians are all worried. Therefore, an urgent appeal to oil producing countries has been made to pump more into the market so that prices once again fall. As in the past, this could happen again; but next year, perhaps, no longer, and thereafter, never again.

Next week experts from all over the world will meet in Berlin at the third conference of the “Association for the Study of Peak Oil” (ASPO). The conference will be hosted by the Federal Institute for Geological Sciences and Raw Materials. The topic of the conference is the dwindling reserves of oil and natural gas.

“Peak to be reached next year”

Colin Campbell is going to be there as well. He is considered to be a leading expert in the evaluation of oil reserves. The geologist who has worked for Texaco, BP, Fina, Shell and several other oil companies now lives in a one-horse town called Ballydehob in the south of Ireland. He has just finished an update of his forecast for future oil production. “It looks as if we are going to reach peak in the next year,” Campbell says.

This “Peak”, until recently seen by Campbell as coming around the year 2010 – for which he was considered an extreme pessimist – is a trouble spot for the whole world economy. If the model of a “bell curve” for oil production, as Campbell uses it, is correct, there will be dire consequences after peak has been reached: Oil production will inevitably and continually decline, prices will rise, the world economy will fall into crisis and the battle for dwindling resources will unfold with a vengeance.

“That's really a joke”

Is the world economy threatened with the greatest crisis of all time? Predictions based on the “Hubbert Curve” – first applied by geologist Marion King Hubbert nearly fifty years ago – have been proven to be correct many times. For example, as a basis for predicting the peak of regions such as the 48 US states, where production reached peak at the beginning of the Seventies. The forecast was also validated two years ago by the decline in Norwegian North Sea oil production.

“That's really a joke,” says Leonardo Maugeri, top-manager of the Italian oil company Eni (Agip): “Years ago Campbell predicted peak for 1989, then for 1995, then for 1998 and then 2002.” Maugeri states in the current edition of the magazine “Science” that new exploration of oilfields, improved techniques to exploit well-known deposits and market forces will lead to an increase in oil production for decades, boosting economic growth and even satisfying the demand of the newly awakened Chinese dragon.

Expensive additional reserves

Michael Lynch from the Massachusetts Institute of Technology in Cambridge, near Boston, is of a similar opinion. He believes in a “long and soft transition”. There is “still a lot of conventional oil, and above all unconventional.” For example, there are deep deposits of heavy oil under the seabed in Venezuelan waters and in the tar sands of Canada. The exploitation of these reserves would be economically feasible at a long-term oil price of more than $25 per barrel.

But particularly with the huge Canadian deposits – in terms of net amount of oil, the North Americans are second behind Saudi Arabia world wide – the problem is that using currently available technology, more energy is consumed in production than the product returns. Of course this is not very practical, without even taking into account the consequences of this “dirty oil” for the environment and climate.

Warnings from financial market analysts

When global oil resources are assessed, surprisingly, the experts are often the financial market analysts and not the geologists. They are not considered to be very pessimistic. However, recently warnings have been coming out of this corner too. Matthew Simmons, an oil broker in Houston, Texas and until recently a close adviser to the Bush administration concerning energy questions, is convinced that world oil production is now at peak or will reach peak in the very near future; with all the consequences this will have for the development of prices – even though peak in the most important oil countries in the Gulf is not imminent. Whether his prediction is correct, will be seen only in retrospect, Simmons believes.

Campbell also says: “One doesn't see a peak when standing on it.” Concerning his frequently revised predictions of the past, he comments: “Some people say that I have failed. I say I am making progress.”

Where are the reserves?

Up to now, Saudi Arabia has been the guarantor for the free flow of oil. Once again, the sheikhs are being called upon to set things right. However, doubt has recently increased as to whether the Saudis have the additional capacity to cover the increasing demand in the oil market for decades to come, and thus keep prices at least fairly reasonable. Maugeri, whose company is very involved in the Gulf, says he has reliable information that up to 2009, Saudi Arabia could produce much more than is necessary to regulate prices.

On the other hand, Simmons believes that capacity estimates have been far too high for political reasons. For example, at the world's largest oil field, al-Ghawar, more and more water must be pumped into the jagged limestone to keep the oil flowing. Furthermore, since the Sixties there have been no large new discoveries even in Saudi Arabia.

The great prospects that explorers had seen a few years ago in the oil deposits of the Caspian Sea have not been realised. Instead of one huge oil field there are many small ones, yielding about15 billion barrels, much less than the 200 hoped for. Moreover, the oil there is extremely sulphurous and puts a great strain on drilling equipment. Some large companies have already backed out. In addition to the lower expectations resulting from these geologically based corrections, there is the recent news concerning oil companies that have over-reported their reserves to reassure investors. This year several top managers have had to leave because of misleading information.

“Obviously there is nothing more to find”

Jeremy Rifkin, the environmental and social activist and author of the book “The Hydrogen Economy”, in which he predicts the end of the oil economy and advocates a combination of hydrogen-technology and renewable energy resources as a future model, says: ”There is obviously nothing more to find.”

Developments in the last few years are certainly no reason for optimism. In a study done in 2000, the American mining institute “US Geological Survey” expected new discoveries yearly of about 24 Gigabarrels (billion barrels). However, over the last ten years discoveries have seldom exceeded ten. Meanwhile, yearly consumption is now twice as much. Indeed, which side is right concerning future oil production will not be known for a few years. For geologists such as Campbell or physicists like Kjell Aleklett from Uppsala University (Sunday newspaper, 4th April), an oilfield contains only as much oil as can be produced with the currently available recovery techniques. On the other hand, the economists believe that oilfields and their usability are a matter of dynamics, depending on a combination of exploration, drilling techniques and prices.

Considering all of this, the truth might be somewhere in-between. That would mean that peak will extend into a plateau, and the downward trend of production will not follow the steep decline as suggested by a Hubbert-curve. In the future, however, oil will not get any cheaper because the effort and costs involved in production are sure to rise.

“The obsession with oil security and oil control”

Maugeri writes in his article in “Science” that such warnings only nurture “the obsession with oil security and oil control, which is already rooted in Western opinion and has always led to poor political decisions.” Who would disagree with that? It is high time for some decisions concerning energy policy. The governors of California and New Mexico signalled in April what they believe should be done in view of oil depletion: They signed a declaration of intent to produce more energy in the future from renewable sources such as solar, wind and biomass, and to markedly improve the energy-efficiency of their states. At the moment, however, President Bush has other worries.